R&D Tax Credits for Food and Beverage Manufacturers
Research and Development (R&D) tax credits are a viable option for food and beverage manufacturers. These companies are always striving to develop new or improved products to meet consumer demands in a world with ever-changing preferences. As food and beverage manufacturers develop and improve their products, they could benefit from claiming the R&D tax credit.
What is R&D Tax Credits?
R&D tax credits are designed to reward taxpayers for qualifying activities related to the development of new or improved products or processes. The credit applies directly to offset a company’s tax liability based on qualified research expenses (QREs) and has the potential to reduce tax liability to zero dollars for eligible small businesses.
The R&D tax credit is available at both the federal and state level. The federal credit amount could be 5% to 10% of a company’s qualified research expenses during a given year with no limitation on the amount of credit and expenses that can be claimed each year. The state credit amount will vary for each state. Unused R&D tax credits can be carried forward for up to 20 years if the credit cannot be used immediately or completely. Previously filed tax returns can be amended for up to three years to claim the R&D tax credit retrospectively.
What Food and Beverage Activities Qualify for R&D Tax Credits?
The most common qualified research expense for food and beverage manufacturers is developing new or improved products and processes. Some other examples of R&D activities that would qualify manufacturers of food and beverage products for the tax credit include:
- Developing new or improved food and beverage products to stay current with consumer trends, including organic, gluten-free, easy-to-prepare meals, etc.
- Developing new ingredients and formulations to reduce costs, improve shelf-life or mitigate ingredient sourcing issues
- Developing automated or optimized processing and packaging equipment or systems
- Developing new packaging materials and methods to increase shelf-life, optimize storage space and meet new federal/state/local health regulations
- Implementing Enterprise Resource Planning (ERP) software to integrate production, purchasing and shipping systems
- Implementing new or improved sanitization methods to improve food safety and quality
Food and Beverage Manufacturing Job Roles that Could Qualify for R&D Tax Credits
There are certain job roles that would signify that a company could qualify for R&D tax credits. In the event that an organization has the following roles, these employees’ wages could be considered qualified expenses for the purposes of R&D tax credits:
- Biologist
- Chemist
- Enologist
- Food Scientist
- Food Technologist
- Food/Beverage Formulator
- Manufacturing Engineer
- Packaging Engineer
- Product Development Associate
- Quality Assurance (QA) Technician
There are many misconceptions about the R&D tax credit, but this credit could provide a great benefit for food and beverage manufacturers. If any food and beverage manufacturers believe they could qualify for an R&D tax credit, they should start collecting information about their company’s potential qualified activities to discuss with a tax professional. Should you have any questions regarding R&D tax credits, please contact a Brown Plus advisor.